Blank-cheque deals fuel SPAC boom investments

SPACs shot to prominence in 2020 due to their popularity in the US tech sector.

They have also been enthusiastically embraced (albeit to a far more modest extent) by the energy industry, specifically for renewable power, clean-tech, hydrogen, energy storage, EV charging and battery technologies — and in more limited cases for conventional power and oil and gas businesses.

Although there is nothing particular about SPACs that lend them to energy company floats, they have been one of many channels through which capital has flowed to the clean energy sector at a time when investors are motivated by commercial opportunities to tackle climate change through energy transition solutions.

In the energy sector, regardless of regulatory hurdles, in the right

WHAT ARE SPACS?

SPACs, in their current form, have been around since at least the early 1990s.

Often referred to as ‘blank-cheque’ companies, they are empty cash shells with no business operation, created with the sole purpose of holding investors’ cash and listing on a stock exchange, with the objective of acquiring a company or asset.

SPACs are formed by a sponsor, or group of sponsors, consisting of a management team who will seek a private business to purchase.

Private companies that are acquired by/merged with SPACs become publicly-listed and the SPAC relinquishes its acquisition vehicle status (known as ‘de-SPACing’).

If the acquired company trades well and its share price increases, investors receive a return on their investment.

Although SPACs do not usually have a specific target in mind at the time of listing, the sponsors typically have industry-specific knowledge and will target businesses in these industries.

As part of the acquisition, the SPAC’s sponsors will often join the acquired business’s management, and may serve on the board of the public company.

Once listed, SPACs typically have two years in which to acquire a private business, or they must return the money to their investors.